CN-5:Small Plant Closures and Phasing Out of Outdated Capacity

Policy Description

In 2007, China’s State Council announced a Comprehensive Working Plan of Energy Conservation and Emission Reduction to accelerate the closing of small plants and phasing out outdated capacity in 14 high energy-consumption industries. In the 12th FYP, the phasing-out of outdated production capacity is continuing.

Description

In 2007, China’s State Council announced a Comprehensive Working Plan of Energy Conservation and Emission Reduction to accelerate the closing of small plants (*1) [3] and phasing out outdated capacity in 14 high energy-consumption industries (see under "Target Group'' below).

The Economic Commission (*7) in a county or municipality identifies enterprises that violate national and provincial guidelines on industrial equipment and production capacity standards [1]. After receiving the approval of the mayor, the Commission publishes a list of small plants that are old and inefficient, and lists time frames for "voluntary" closure. Some closed enterprises or enterprises that shut down outdated production equipment receive compensation of around 20 to 30 percent of the closed enterprise or production line value, but the majority do not.

In 2010, the number of targeted industrial sectors was increased to include 6 additional industrial sectors (*2). Also, the targets -- in terms of the amount of capacity required to be closed -- were increased.

In 2011, the first year of the 12th FYP, the phasing-out of outdated production capacity is continuing. Phase-out targets have been allocated to local enterprises by local governments. The Ministry of Industry and Information Technology (MIIT) publicized the list of affected enterprises and equipment [9]. The list covers 18 industrial subsectors and in total 2255 enterprises will be involved.

The Ministry of Finance (MOF) provides certain fiscal incentives to local governments to support the phasing-out [10]. The exact incentive amount is determined based on various factors, including the budget of the central government, phasing-out targets of local governments, progress of target completion in previous year, and the use of incentives by local governments.

Append this new content and table to current policy description:

In the 11th FYP, targets for closure were often updated year to year since most of the original targets were surpassed. The table below shows the total amount of closures to date for ten of the common targeted facility and commodity types.

Driver of energy consumption or emissions affected by policy: Size and operation years of equipment/technology/facilities

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

Quantitative Target? no

Target: A list of small plants is published each year with time frames for closure according to predefined closure thresholds. Specific closure targets and closure thresholds are provided by sector. Two examples include:
- Cement: mechanized shaft kilns with kiln-diameters less than 3.0 meters; dry hollow kilns with kiln-diameters less than 2.5 meters (except for bauxite cement production kilns); wet-process cement production lines (except for lines dispose sewage sludge and carbon carbide slag); cement grinding mills with diameters less than 3.0 meters (except for special cement production), and ordinary cement shaft kilns.
- Iron and steel: iron-making blast furnaces with volume equal to or less than 400 m3; steel-making converters and electric arc furnaces with capacities equal or less than 30 tonnes.
A complete list of closure thresholds can be found in [7]

Time Period: N/A

Progress Monitored? yes

Verification Required? yes

Enforced? yes

Sanctions: Plant closes down (*5)

Requirements on the Target Group

-

Support by Government

The national government has made available financial rewards for local governments to incentivise them to phase-out small plants [3];

The Central government has set up a special fund to provide fiscal incentives to reward the less developed regions to close inefficient or small production capacity;

Local governments shall also be responsible for raising additional funding to cover the costs associated with the closures;

Note that the above constitutes support for local governments, not for companies.

Implementation Toolbox

Unknown

Complexity of Implementation

Government

Difficulties remain at the local level, where government officials are reluctant to give up tax revenues and jobs from local enterprises subject to closure and to overcome resistance of the plants

Target Group

Implementing the measure is relatively simple, but with serious impacts.

Calculated net savings at end of 2008 [8]:
- Final energy: 106 Mtce (3.1 EJ)
- Primary energy: 129 Mtce (3.8 EJ)
CO2 emissions reductions: 242 MtCO2.
To be on track, closures need to be at 80% of target by the end of 2009 [7]. Data on 10 of 14 original sectors (no data on new sectors) shows 8 sectors reached or surpassed the 80% mark (3 significantly ahead), while 2 sectors are below the 80% mark (54% and 60%) (*6)

Not available

Estimated costs/benefits for industry

Not available

High
Some small steel enterprises have even resisted closure by increasing production;
Closures of small, vertical shaft kiln cement plants have caused unemployment problems since the more modern cement plants require fewer workers

Estimated cost for government

Not available

Medium

Other Benefits

General Benefits

Reduce carbon emissions, increase awareness.

Specific Benefits

Improving enterprise image of social responsibility, modernisation of technological stock, more economically efficient production due to larger scale, competitiveness, reduction of other pollutants.

References & Footnotes

References

[2a] State Council, 2007, State Council Document (2007) 15. Comprehensive Working Plan of Energy Conservation and Emission Reduction. May 23, 2007. http://www.gov.cn/zwgk/2007-06/03/content_634545.htm

[2b] State Council, 2007, State Council Document (2007) 2. Suggestions on Accelerating Small Coal-fired Plants Closures. January 20, 2007. http://www.gov.cn/zwgk/2007-01/26/content_509911.htm

[2c] State Council, 2007. State Council Document (2007) 53. Power Generation of Dispatching for Energy Conservation. March 21, 2007. http://www.gov.cn/zwgk/2007-08/07/content_708486.htm

[2d] State Council (2010). The State Council Notice on Further Strengthening Phasing-Out Obsolete Production Capacities, [2010]7. April 6, 2010, Cahttp://www.gov.cn/zwgk/2010-04/06/content_1573880.htm.

[5] Feng Fei, Wang Jinzhao, Li Minzhi, Wang Qingyi, Wang Xuejun, He Kebin, n.d. Midterm Evaluation of Implementation of the Work of Energy Conservation and Emission Reduction during the Eleventh Five-Year Plan and Policy Directions under New Situation

[6a] National Development and Reform Commission (NDRC) (2006). The Notice on Suggestions for Accelerating Structural Change in Cement Industry. April 3, 2006. http://www.sdpc.gov.cn/zcfb/zcfbtz/tz2006/t20060425_67426.htm

[6b] National Development and Reform Commission (NDRC) (2007). The Eleventh Five-Year Plan for Coal Industry Development. January 22, 2007. http://www.gov.cn/gzdt/2007-01/22/content_503391.htm

[6c] National Development and Reform Commission (NDRC) (2007). Notice on Reducing Grid Purchasing Prices from Small Coal-fired Plants. April 2, 2007. http://www.sdpc.gov.cn/zcfb/zcfbtz/2007tongzhi/t20070405_126630.htm

[6e] National Development and Reform Commission (NDRC) (2009). "Overcome Difficulties with Full Efforts and Contribute to Climate Change Mitigation -- An interview with Xie Zhenhua, Vice-Chairman of National Development and Reform Committee", June 26, 2009. http://www.ndrc.gov.cn/xwfb/t20090626_288055.htm

[6f] National Development and Reform Commission (NDRC) (2009). “National and Provincial Development and Reform Commissions Held a Meeting on Resources Conservation and Environmental Protection in Xi’an, March 31, 2009.” http://hzs.ndrc.gov.cn/newgzdt/t20090331_270198.htm

[7] Price, L. (2010). Information for Development of a Country Factsheet on Industrial Energy Efficiency Policies and Programs in China. Berkeley, CA: Lawrence Berkeley National Laboratory.

Footnotes

(*1) The definition of “small plants” is done at a very disaggregated level. Two examples:
- Cement: mechanized shaft kilns with kiln-diameters less than 3.0 meters; dry hollow kilns with kiln-diameters less than 2.5 meters (except for bauxite cement production kilns); wet-process cement production lines (except for lines dispose sewage sludge and carbon carbide slag); cement grinding mills with diameters less than 3.0 meters (except for special cement production), and ordinary cement shaft kilns.
- Iron and steel: iron-making blast furnaces with volume equal to or less than 400 m3; steel-making converters and electric arc furnaces with capacities equal or less than 30 tonnes.
A complete list of closure tresholds can be found in [7]"

(*3) - Power generation dispatching is based on energy consumption and pollution levels, i.e., the more energy-efficient, the higher dispatching ranking a plant is given (A more efficient plant would get preferential treatment, by moving up in the dispatch order (i.e. Have to deliver a bigger amount of the electricity consumed than if this was decided purely on the price-based dispatch curve));
- Grid electricity purchase prices for all small coal/oil-fired plants should be reduced to lower or equal to local average level, and no additional subsidies are allowed

(*5) When implementing the plant and production line closure policy, local governments are more likely to resort to differentiated electricity pricing and cutting off electricity and water, especially for small enterprises. In some cases, local mayors can ask the Security Bureau to send police officers to assist with forced closures, along with removal and destruction of factory equipments. One case in which strict forms of enforcement were used prior to the end of the 11th Five Year Plan was in response to an ‘investment restriction’ punishment imposed by the national government that restricted the approvals of all new energy-intensive projects for three months. To placate the national government, local leaders ordered one electricity company to cut off electricity to over 70 enterprises in order to have the investment restrictions lifted.

(*7) the Economic Commission is a Provincial Authority (e.g. Shanghai Economic Co,mission, see: http://en.openei.org/wiki/LBNL_China_Energy_Group, or Shanxi
Provincial Economic Commission http://www.frankfurt-school.de/content/en/ecbc/ecbc_portal/content_files/file50/CBR2010_011_Kostka_Energy%20Policy.pdf)). These are not related to NRDC or MIIT

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